Energy bringing Beijing and Tehran closer together
By Frederick W. Stakelbeck Jr.
web posted September 12, 2005
Iran is in the midst of a geopolitical transformation that has the
potential to inflame the world's most volatile and unpredictable
region. An integral part of this transformation is the nurturing of
bilateral relations with countries sharing similar geopolitical
interests and a strong resentment for perceived U.S. hegemony
-- China is such a country.
Already China's second largest supplier of oil behind only Saudi
Arabia, Iran is ideally positioned to play a central role in China's
overall energy policy moving forward. Some energy observers
predict that China will consume more oil than the U.S. and 75
per cent of all new global oil production by 2015. This, as global
demand for oil continues to grow at a pace not seen since 1980.
Fueling the global demand for oil, liquefied natural gas (LNG)
and other forms of energy is an energy starved China. Imports of
crude reached 130 million tonnes in 2005, up from a record 122
million tonnes in 2004. Most experts agree that China's domestic
oil and LNG supplies will be insufficient to meet its rising demand
for energy in the very near future. As a result, Iran, one of the
leading producers of oil and LNG in the world, has become a
natural partner for China.
But unanswered questions remain concerning the budding
relationship. What will Iran's ultimate role be in China's overall
global strategy? How will the relationship evolve beyond energy?
And could regional instability in the Middle East result from the
China-Iran bilateral alliance?
Unsettling signs of energy-related stress are already evident
throughout China, threatening the country's plans for sustained
growth.
Chinese Oil Shortages
Increased energy demands in China have caused oil supply
shortages and inflation, crippling China's vibrant Guangdong and
Yunnan provinces. In Shenzhen City alone, over 128 gas stations
were closed in August, as prices continued to spiral upward.
Major cities such as Beijing and Shanghai have also felt the effect
of gas shortages. In Heilongjiang Province, long gas lines have
brought back memories of America's gas shortages of the 1970's
with frustrated Chinese consumers wondering when it will all
end. The frequent shortages have prompted some Chinese to
ask if a nationwide energy crisis is unavoidable.
Complicating China's energy woes, the Daqing oil field, one of
the country's most mature oil fields producing 900,000 barrels
per day (bpd), saw its production decline by 5 per cent in 2004.
Recently, the Chinese government hired foreign energy firms to
try and extend the life of its second largest field, Liaohe in
northeastern China, as fears mount that the field will dry up in
only a few short years.
These serious energy developments have led Beijing to increase
its ties to Tehran. Recent statements released by the Chinese
Academy of Social Sciences support the view that China will
increase its oil dependence on the Middle East in the years to
come, "It is an unarguable fact that China's dependence on
Middle East oil is increasing. Henceforth, the Middle East will be
the most important supply source of international oil for China."
Gavin Thompson, of British oil consulting firm Wood Mackenzie,
recently noted, "China will never be able to satisfy its oil demand
through foreign acquisitions. They are getting 55 to 60 per cent
of their oil imports from the Middle East. In the future, that
proportion will only increase."
China-Iran Energy Cooperation
The number of energy-related deals over the past year between
Beijing and Tehran have been staggering. In late October 2004,
a mega contract was signed by China oil giant Sinopec and Iran
for an estimated $100 billion for the shipment of 250 million
tonnes of LNG and 150,000 bpd of crude oil over a 25-year
period. A subsequent $100 billion LNG deal is on the near
horizon bringing the total investment package to an incredible
$200 billion.
Adding to this impressive array of bilateral energy deals, China's
state oil trader Zhuhai Zhenrong Corp. agreed in 2004 to buy
over 110 million tonnes of LNG from Iran over a 25-year period
for $20 billion. Both countries also announced a joint tanker
venture for the transport of LNG to China. Finally, a deal was
struck in late 2004 between the two countries to build a refinery
in Iran to handle 360,000 bpd of gas condensates. The project,
which is expected to be completed in 2007 or 2008, is being
financed by state-owned investment company China
International Investment Trust Company (CITIC).
According to the Oil and Gas Journal, Iran is the second largest
oil producer in the world with its 32 oil fields containing
approximately 125.8 billion barrels (bb) of proven oil reserves,
or 10% of the world's total. In 2004, the country's proven oil
reserves increased to 132 bb after new oil discoveries were
made in the Kushk and Hosseineih oil fields located in the Iranian
province of Khuzestan.
To meet global energy demand, Iran is pushing forward with
plans to increase oil and LNG production by investing $50 billion
in its energy sector over the next several years. This level of
investment is essential for the country's economic growth, since
oil proceeds account for 40 to 50 per cent of government
revenues.
Some energy experts believe that Iran could increase its crude
capacity to meet the specific energy needs of China, but not
without an enormous struggle. Iran has not exceeded 3.9 million
bpd production levels since 1978/79. Plans announced by Iran's
Ministry of Oil to produce 5 million bpd by 2009 and 7 million
bpd by 2024 have been termed "ambitious" by many in the oil
industry.
In addition to oil, Iran possesses the world's second largest
reserves of LNG behind only Russia with 940 trillion cubic feet
(Tcf) in proven natural gas reserves. Iran's LNG production is
expected to rise to 206 billion cubic meters (cm) in 2005; 342
cm in 2010; and 519 cm in 2025. Making opportunities for
increased China-Iran bilateral energy cooperation even more
plausible is the fact that many of Iran's most promising gas fields
remain unexploited. This presents China with enormous
investment opportunities and new areas for cooperative projects,
further cementing the bilateral relationship.
U.S. Concerns
Gal Luft, executive director of the Institute for the Analysis of
Global Security recently noted, "Without a comprehensive
strategy designed to prevent China from becoming an oil
consumer on par with the U.S., a superpower collision is in the
cards."
Without question, closer energy ties between Beijing and Tehran
will reduce Washington's leverage on matters of economic,
military and nuclear importance. Taken separately; China and
Iran are formidable regional powers. However, taken together,
they become a regional and global force. Add to the equation
Chinese and Iranian joint cooperation in organizations such as
the Shanghai Cooperation Organization (SCO), and
confrontation with the U.S. becomes a distinct possibility.
China now sees Iran as its main strategic ally in the Middle East.
Recent statements made by Chinese officials to world bodies
such as the United Nations, European Union and International
Atomic Energy Agency (IAEA) defending Iran's uranium-
enrichment activities prove that a closer relationship is rapidly
evolving. "I don't think IAEA talks will be helpful to bring the
issue to the [security] council. The council has too many things
on its table. Why should we add to this," said China's UN
Ambassador Wang Guangya.
For those countries looking to challenge U.S. influence in the
Middle East, U.S. Energy Secretary Spencer Abraham has a
clear message, "Energy security is a fundamental component of
[U.S.] national security. Military force will be an increasingly
important prerequisite to safeguard the flow of foreign oil."
Simply stated, any independent or coordinated threat to the U.S.
oil supply originating in the Middle East will be met by an
overwhelming U.S. military response.
A U.S.-China Led Energy Summit
Will Iran become the "poison-tipped spike on the red dragon's
tail," intoxicated by the prospect of reviving the past glory of the
Persian Empire? Evidence is mounting that China is trying to
cultivate a unique strategic relationship with Iran, while also
expanding its influence throughout the Middle East.
Chinese President Hu Jintao has publicly stated that energy will
be high on his agenda for his trip to Washington in September.
President Bush should take this opportunity to propose a future
U.S.-China led energy summit, inviting countries such as Japan,
Germany, Great Britain and Russia to participate. This would be
a constructive way to address the challenges presented by global
oil dependency. It is in best interests of the U.S., China and the
world to address the growing global energy crisis before the time
for negotiation passes.
Frederick W. Stakelbeck Jr. is an expert on bilateral and
trilateral alliances as they relate to China foreign policy. His
writings address the implications of China's emerging regional
and global strategic influence and relationships upon U.S.
national security. He is a frequent contributor to
FrontPageMag.com, The American Thinker and Global
Politician. His work has also appeared in In the National Interest
and the Intellectual Conservative.
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